Beverage SMEs Are a Growing Market for Innovative Ingredients

Despite the overall importance of multinational operators in beverage supply, the industry has recently seen a surge in the numbers of small- and medium-sized enterprises (SMEs) that are making a name for themselves, often through innovation and diversification. For ingredients suppliers looking to generate value, these SMEs are likely to become an increasingly important customer base as they are often pioneers in the use of new, premium and innovative ingredients.

This ever-increasing body of SMEs is cashing in on consumers’ growing interest in more natural, healthy, traditional, authentic and experimental beverages, usually at the premium end of the market. They are particularly prominent in the developed regions of North America and Western Europe and are impacting on both the soft drinks and alcoholic drinks industries.
As well as interest in healthy and functional ingredients, they also tend to be highly innovative in their choices of flavouring and sweetening ingredients, as discussed in the Global Report Beverage Ingredients: Regional Insights.

While many of these smaller beverage firms remain independent and continue to operate in their own niches, others have been instrumental in pushing new types of beverage into the mainstream, expanding so rapidly that they drew the attention of major beverage firms and were swept up by these larger concerns. There have been several such acquisitions in the US soft drinks industry in recent years, including PepsiCo’s purchase of the SoBe teas, fruit drinks and enhanced waters range in 2000 and Coca-Cola’s 2007 acquisitions of both Glacéau’s Vitaminwater business and Fuze Beverage’s collection of enhanced teas and fruit drinks. Being the ingredients supplier of choice for these smaller firms can therefore lead to new or stronger
relationships with some of the world’s largest beverage groups.

The resurgence of smaller operators is also a powerful trend in the brewing industry. In the US, for example, it is reported that the total number of breweries has risen from just 89 in the late
1970s to more than 2,400 in 2012, thanks mainly to the dynamic growth of the craft brewing category, which encompasses an ever expanding number of smaller microbreweries and brewpubs. Today, craft brewers represent almost 98% of total brewery numbers and account for almost 7% of total US beer volume and more than 10% of market value. In addition, as in the soft drinks industry, these smaller firms tend to be more innovative than many larger operations. For ingredients suppliers, this has resulted in demand for more speciality and source-specific hops and malts as well as interest in more unusual flavouring ingredients for beer, including fruits, spices, chilli, chocolate, tea and even peanut butter.

Both soft drinks SMEs and craft brewers vary significantly in size but their sheer number equates to a growing volume of beverage demand and their focus on premium products ensures that their value contribution is even higher. Targeting a larger number of smaller operations certainly holds its own challenges for the ingredients industry but suppliers that can cater effectively to the needs of SMEs and develop a series of strong relationships in this arena could reap healthy rewards.